Postindependence

Guyana achieved political independence in 1966, but economic
independence did not immediately follow. Most decisions affecting the
economy continued to be made abroad because foreign companies owned most
of the agricultural and mining enterprises. Two British companies,
Booker McConnell and Jessel Securities, controlled the largest sugar
estates and exerted a great deal of influence on the nation. In the
early 1970s, the Booker McConnell company alone accounted for almost
one-third of Guyana's gross national product (GNP). The company produced
85 percent of Guyana's sugar, employed 13 percent of the work force, and
took in 35 percent of the country's foreign exchange earnings.

Two other foreign companies dominated the mining sector: the Demerara
Bauxite Company (Demba), a subsidiary of the Aluminum Company of Canada
(Alcan); and the Reynolds Bauxite Company, a subsidiary of the Reynolds
Metals Company of the United States. Together these firms accounted for
45 percent of the nation's foreign exchange earnings. Foreign companies
also controlled the major banks.

The Burnham government, which took office in 1964, saw continued
foreign domination of the economy as an obstacle to progress. As
economist DeLisle Worrell pointed out, foreign ownership was considered
the root cause of local economic difficulties. Emerging nations of the
Caribbean region shared this viewpoint, which was supported by a number
of arguments. Foreign-owned companies were said to use inappropriate
production technologies in the Caribbean. These technologies were
capital intensive, rather than labor intensive, because they had been
developed for the industrialized world. Thus, local unemployment
remained higher than necessary. Furthermore, local economies were geared
to producing only primary products (sugar and bauxite in Guyana) rather
than value-added products (processed foods and aluminum parts, for
example). Guyana sold its inexpensive primary products abroad at world
market prices that made local economies vulnerable to international
price swings. At the same time, local economies had to import expensive
products, such as machinery, because most small, less-developed
countries had no manufacturing base.

According to critics of the country's economic system, foreign
companies were satisfied with the existing arrangements and had no
incentive to develop the local economies. In short, foreign control was
stifling regional aspirations. Many people in Caribbean countries,
particularly those with left-leaning political sympathies, called for
government control of the economies.

The government moved vigorously to take control of the economy. In
1970 Burnham proclaimed Guyana as the world's first "cooperative
republic." He said that the country would continue to welcome
foreign investors but that the government would own at least 51 percent
of any enterprise operating in Guyana. The Burnham government originally
planned not to exceed this 51 percent ownership; it wanted majority
control of the companies but wanted to maintain foreign management teams
and the flow of foreign investment. In practice, however, major foreign
companies balked at the idea of shared ownership, and the Burnham
government took complete control of the economy, eliminating both
foreign ownership and foreign management.

During the 1970s, Guyana nationalized the major companies operating
in the country. Demba became a state-owned corporation in 1971. Three
years later, the government took over the Reynolds Bauxite Company. The
Burnham government then turned its attention to the sugar industry. Some
observers say the latter move was largely for political reasons; they
say the Burnham government was seeking to extend its base of support
among Indo-Guyanese sugar laborers. Guyana nationalized Jessel
Securities in 1975 after the company began laying off workers to cut
costs. In 1976 the government nationalized the huge Booker McConnell
company. By the late 1970s, the government controlled over 80 percent of
the economy.

Nationalization of large foreign companies was but one aspect of
pervasive government control of economic activity. By the early 1980s,
the government had also taken over the bulk of the retailing and
distribution systems. It controlled the marketing of all exports, even
those few products, such as rice, which were still produced privately.
It owned all but two financial institutions and tightly regulated
currency exchange. The government controlled prices and even attempted
to dictate patterns of consumption by banning a wide range of consumer
imports. Local substitutes for even the most basic imports were
proposed, such as rice flour for imported wheat flour.

The nationalized economy at first appeared to be performing well.
During the early 1970s, world prices of both sugar and bauxite rose,
allowing the newly nationalized enterprises to reap sizable profits.
Increased government spending helped stimulate the economy, and GDP grew
at about 4 percent per year from 1970 to 1975.

In the late 1970s and early 1980s, however, the world commodity
prices that had favored Guyana declined, reversing the earlier gains.
Economic output dropped as demand for sugar and bauxite fell.
Nonetheless, government spending continued at a high rate, and Guyana
was forced to begin borrowing abroad. This pattern of declining GDP,
continued high levels of government spending, and foreign borrowing was
common throughout Latin America in the 1980s.

Guyana's economic decline grew more acute during the 1980s.
Unfavorable world prices were only part of the problem. There were two
more basic difficulties: the lack of local managers capable of running
the large agricultural and mining enterprises, and the lack of
investment in those enterprises as government resources were depleted.
Bauxite production, which had dropped from 3 million tons per year in
the 1960s to 2 million tons in 1971, fell to 1.3 million tons by 1988.
Similarly, sugar production declined from 330,000 tons in 1976 to about
245,000 tons in the mid-1980s, and had declined to 168,000 tons by 1988.
Rice production never again reached its 1977 peak of 210,000 tons. By
1988, national output of rice was almost 40 percent lower than in 1977.

The decline in productivity was a serious problem, and the Burnham
government's reaction to the downturn aggravated the situation. As
export revenues fell, foreign exchange became scarce. Rather than
attacking the root of the problem, low domestic output, the government
attempted to ration foreign exchange. The government regulated all
transactions requiring foreign exchange and severely restricted imports.
These controls created their own inefficiencies and shortages. More
significantly, tight government control encouraged the growth of a large
parallel market. Smugglers brought in illegal imports, and currency
traders circumvented government controls on foreign exchange. Although
many citizens began working and trading in the parallel economy, many
others were leaving the country. An estimated 72,000 Guyanese, almost
one-tenth of the population, emigrated between 1976 and 1981. Among
those who left the country were many of the most skilled managers and
entrepreneurs. Finally, the hostile political orientation of the Burnham
government foreclosed the possibility of aid from the United States.

The crisis finally came to a head in the late 1980s because of
Guyana's unsustainable foreign debt. As export revenues fell, the
government began borrowing abroad to finance the purchase of essential
imports. External debt ballooned to US$1.7 billion by 1988, almost six
times as large as Guyana's official GDP. Because the government funneled
the borrowed money into consumption rather than productive investment,
Guyana's economy did not grow out of debt. Instead, the government
became increasingly unable to meet its debt obligations. Overdue
payments, or arrears, reached a staggering US$1 billion in 1988. Rather
than risk a curtailment of all foreign credit (even short-term loans for
imported machinery and merchandise), the Hoyte government embarked on an
IMF-backed austerity and recovery program. The Economic Reform Program
(ERP) introduced in 1988 amounted to a reversal of the statist policies
that had dominated Guyana's economy for two decades.